Many executives own shares in the companies they manage and are also in high tax brackets. When faced with the choice between declaring dividends and repurchasing shares, managers may opt to repurchase shares as it is not a taxable event for them unless they sell their shares and with fewer shares outstanding, the stock price will likely rise. The company's investors may prefer dividend payments. Glven the discussion in the introduction to the course, this is an example of what theory in action?

Many executives own shares in the companies they manage and are also in high tax brackets. When faced with the choice between declaring dividends and repurchasing shares, managers may opt to repurchase shares as it is not a taxable event for them unless they sell their shares and with fewer shares outstanding, the stock price will likely rise. The company's investors may prefer dividend payments. Glven the discussion in the introduction to the course, this is an example of what theory in action?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Similar questions

A retiree believes that investing in a non-dividend paying growth firm, which requires the periodic sale of stock for income, will eventually lead to a loss of all shares. Explain the flaw in this logic.
For a large public company, paying cash dividends to shareholders will ____; repurchasing shares from shareholders is likely to _____. Group of answer choices a. reduce the company’s share price because it decreases the company’s total asset value; reduce the company’s share price because it decreases the company’s asset value b. reduce the company’s share price because it decreases the company’s asset value; raise the company’s share price because it signals good news to the stock market c. reduce the company’s share price because it decreases the company’s asset value; raise the company’s share price because it reduces the number of shares outstanding d. raise the company’s share price because it sends good signal to the stock market; raise the company’s share price because it reduces the outstanding shares number
The history of the stock market shows that there are a large number of start -up corporations whose stock price traded at high market values despite large losses and never any positive earnings. Why would investors be willing to pay a high price for the stock of a corporation that has never reported positive earnings?
Hi Can You answer the questions below please
In order to raise money, existing corporations can sell more shares in an initial public offering (IPO). Question 10 options: True False
When it comes to Financial Business Management, discuss whether the statements below are true or false? On average, acquisitions destroy shareholder value. The liquidation value of a company’s shares always places a floor under its stock price. An unusually low stock price in managements’ eyes encourages management to take the company private in a management buyout.
Dual class stock is generally designed to Provide bigger dividends to majority owners. Help minority owners obtain board representation. Protect the voting rights of managing owners. Improve marketability of the shares. A shareholder in a troubled corporation is not likely to lose his/her: Money invested in the stock. Personal assets. Dividends declared. Par value. 3. An order to the New York Stock Exchange to buy or sell at the best price available is called: - A limit order - A stop order - a market order - a GTC order
Which of the following statements is true? Group of answer choices a. Dividend payments are attractive to executives who hold many executive stock options that were awarded to them by their firms b.Executives and other insiders benefit most by being able to tender their shares in an open market repurchase since they usually are privy to information that is not available to the general public c.Empirical research suggests that small, retail investors prefer stock repurchases to dividend payments d. a firm does not pay dividends, some institutional investors are prohibited from investing it the firmʹs equity
Which of the following statements is CORRECT? * Assume a corporation has less debt than what is ideal. Increasing the use of debt to reach its optimum capital structure would lower the cost of both debt and equity financing. There is no reason to believe that changes in the personal tax rate will have an effect on firms' capital structure decisions. Assuming everything else is equal, a firm with high business risk is more likely to increase the use of financial leverage than a firm with low business risk. In general, a company with low operating leverage has a small percentage of its total costs in the form of fixed costs. If a company's after-tax cost of equity exceeds its after-tax cost of debt, it can still lower its WACC by using more debt.
If Indra intends to be a shareholder in the company over the long term, why is it that you may not have as sharp a preference for receiving dividends as compared to a shareholder who may be invested in the company for a much shorter time frame?
In a few sentences, answer the following question as completely as you can. You are discussing stock valuation techniques with your broker. You mention that your Finance professor stated that “a stock that will never pay a dividend is valueless.” Your broker says this is not true because you can always sell the stock to someone else (thus, a capital gain is possible) a share of stock represents a share of ownership in something tangible (i.e., the issuing firm).Argue for or against your broker’s position.
What are disadvantages for a company to go public by issuing equity in an initial public offering (IPO)? Question 16 options: a) It reduces information asymmetry for competitors b) Class action lawsuits can occur following large stock price drops c) It can attract analyst following resulting in myopic decisions d) All of the above are disadvantages of an IPO e) None of the above are disadvantages of an IPO

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